Zhenro Properties was downgraded to Caa2 from Caa3 by Moody’s and to C from B by Fitch. The downgrade comes on the back of heightened default risk by Zhenro, following its proposed consent solicitation, with Fitch considering it as a distressed debt exchange (DDE). Moody’s notes that the consent solicitation indicates tight liquidity and high default risk with the developer only having RMB 35bn ($5.5bn) in unrestricted cash which may be insufficient to fully cover its maturing debt. Additionally, its high exposure to JVs, increased refinancing risk and lack of funding access also adds to its risk. 

The developer launched an exchange offer for 5 USD bonds alongside a consent solicitation, in an HKEX filing. The exchange offer is for the following bonds – 5.95% March 2022s, 5.98% April 2022s, 7.198% June 2022s, 8.7% August 2022s and 6.5% September 2022s that have a total amount outstanding of $1.05bn. The minimum acceptance amount for the exchange is 85% of outstanding principal of each note. The bonds will be exchanged for new 8% bonds due March 6, 2023 on a par-to-par basis plus $10 in cash before the early consent deadline of March 4, or $5 between that date and the expiration deadline of March 11, 2022. The consent solicitation is for 8 dollar bonds to waive events of default and any consequential breaches or defaults arising from the non-redemption of the 14.724% Perps, and non-payment of principal and interest on the $50mn 5.95% bond due March 6. “The purpose of the Exchange Offer and Consent Solicitation and the Concurrent Consent Solicitation is to extend the Company’s debt maturity profile, strengthen its balance sheet and improve cash flow management,” Zhenro said.

Zhenro’s dollar bonds continue to trade at distressed levels of ~15 cents on the dollar.

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